Just after the Harmony horizon bridge was hacked, a bad or actor, or actor(s), (it appears to be three main wallets), used around $1.3M-$1.5M in depegged tokens, as collateral to borrow all of the assets that were not depegged on AAVE, including my One. Because all of the One has been borrowed with deppeged assets, there is no longer enough One liquidity for me to withdraw my loan.
Now as I see it there are a few different paths that have presented themselves so far.
One, (no pun intended) of those paths is for either Harmony (centralized team) or AAVE (decentralized collective) to deposit enough One that lenders such as myself will have enough liquidity to withdraw.
Another path, is for AAVE to liquidate the collateral, (depegged assets) that were used to borrow with, (a procces thats suppose to happen anyway, when the value of the collateral falls too far below the value of the asset borrowed). The value of those assets while depegged will be less than the amount borrowed, but it is better than nothing, and then to divide that liquidity among the lenders who did not act in bad faith.
And the third option, Harmony Recovery team has started the lengthy multiyear process of buying back deppeged assets to restore the peg(s). They could buy back the depegged from AAVE as well, but this would need to be voted on, as they are currently locked in this state of, smart-contract limbo.
AAVE is well known and quite reputable DeFi protocol. I’d say that it should be a privilege for the small chain to be supported by AAVE.
If this issue isn’t resolved by Harmony Team contributing to the solution, there will be always a question, why other significant lending protocols should enable Harmony?
As an update from the technical side of this, from BGD we have tried to make some clarification also on the Harmony forum regarding the technical support and information we provided to the teams around Harmony, sharing it here for the context (even if some other participant already did) https://talk.harmony.one/t/harmony-aave/21008/50
As we commented there, it is not anyhow the role of BGD to be a decision maker on this, but we have tried our best to inform about the technicalities, advantages, and disadvantages (e.g. how users of the pool can be made whole) of different strategies of recovery.
The way we supported is fully disclosed on the post linked, but right now it is not really clear who is even active on the Harmony team/decision side or if they need any tech guidance from the Aave side.
A solution based on depositing aONE by a recovery party to enable withdrawals, if trusting on the re-pegging of unbacked assets, is doable (even if not perfect, almost nothing is). Apart from that, there is not really much we can help with, as the execution of that action is kind of straightforward.
Regarding what was mentioned of the interest rate strategy of aLINK, we have supported the Aave Guardian on the technicalities of the replacement to reduce the rate, but the tech infrastructure of Harmony (even to approve Guardian transactions) is really fragile, which adds quite important problems of signing coordination.
I’m just dumbfounded that nobody at Harmony or AAVE is willing to stand up for those of use who lent out tokens to be borrowed and refuse to resolve this by liquidating all the borrowed assets. If this were a bank, they would have already gone after me for my house for not repaying my loans. How is this in the hands of an AAVE governance? Someone from AAVE should be driving the discussion on behalf of the loaners who lent out $1.3M worth of ONE.
Well thats the centralized way. This is DeFi and you can look for people giving you voting power. Its not like that everyone in here is buying all these Aave. They are being delegates or try gather the voting power.
AAVE can’t push all the blame to Harmony. It is their fault that assets depegged, but it is AAVE’s fault not liquidating bad loans in time.
And now everyone hand waives “well we’re a DAO, not centralized, so we’re not responsible” lol
Since this debacle, I haven’t used AAVE on other chains, and at this rate never will, as there is nothing to trust in. I hope everyone follows suit.